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Ahead of Nike’s Earnings Report, Analysts Warn Vietnam Shutdowns Will Likely Impact Sales

Athletic giant Nike Inc. is scheduled to report its fiscal first quarter results next week, and though market watchers expect another batch of favorable numbers, they’re also warning of trouble ahead for the Swoosh.

Analysts Jim Duffy of Stifel and John Kernan of Cowen have lowered their estimates for Nike’s full-year sales. In notes this week to investors, they specifically citing the production shutdown in Vietnam, caused by the COVID-19 pandemic.

Factories in Vietnam have been closed since late July following severe outbreaks of the coronavirus in the country. The closures come at time when the global supply chain system is already severely strained, and retailers and manufacturers face steep challenges delivering goods in time for the holiday season.

According to Duffy, “Our analysis of Nike factory partners suggests production in the southern part of Vietnam is approximately 37% of footwear capacity and 23% of apparel capacity. Late July to late September production outages imply eight to 10 weeks impact. We see this impeding product availability beginning late FY2Q and well into FY3Q.”

As a result, he has trimmed his estimates for the second and third fiscal quarters.

Similarly, Kernan lowered his outlook for Nike’s full-year sales by 300bps, calling for 9% growth in the fiscal year.

However, Kernan added that Nike is not the only sneaker brand that will be impacted by the Vietnam factory shutdowns. “We expect more quantification of the exposure from companies on Q3 calls, and expect Q4 and spring/summer sales estimates to be reduced at Adidas, Puma, Under Armour and VF to varying degrees,” he wrote.

In addition, Kernan noted that port delays, which have plagued manufacturers since the end of lockdowns, appear to be worsening again, particularly at the Port of Long Beach in California, where the number of container ships sitting at anchor waiting to unload has increased 50% since August. That will have ramifications across all consumer goods in the United States.

Despite these headwinds for Nike, analysts anticipate that the athletic giant will rebound quickly once production is back up and running, and will return to its expected sales targets for fiscal 2023. “Ultimately we view supply-oriented shocks to the business as one-time in nature and representing opportunity for positive reversal in future periods,” wrote Duffy.

While other investment firms have downgraded Nike’s stock, Stifel maintains its buy rating. “We view the recent pull-back in Nike shares as opportunity and would be buyers, particularly if the stock sees a negative reaction to tempered FY22 guidance,” wrote Duffy.

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